The Bank of England has taken the unprecedented move to reduce interest rates for the second time in just over a week, down to a record low of 0.1%.
In an emergency response to the coronavirus pandemic, the cut means rates are now at the lowest level ever recorded. The industry is now awaiting confirmation from lenders on what this means for mortgage rates, but we can assume borrowers on tracker and variable rates will soon see another reduction in their mortgage payments.
Borrowers with tracker mortgages (where the rate ‘tracks’ the base rate) will undoubtedly see a fall in their interest rates. For example, the latest cut will in theory save borrowers with a £150,000 mortgage another £10 per month. That’s in addition to the £35/40 per month as a result of the last base rate cut just nine days ago. Borrowers on a tracker mortgage with a ‘collar’ to prevent a mortgage rate from falling below a certain level will need to check whether this latest rate reduction will benefit them.
Lenders may also cut standard variable rate (SVR) or discount mortgages, but there are no guarantees. Borrowers should check the terms and conditions of their mortgage. If in doubt, speak to your lender.
Lower rates for remortgage deals
Fixed-rate borrowers will receive no immediate benefit from the latest cut. However, if they are approaching the end of their term, they should start looking at their options to secure a new low, fixed-rate remortgage deal.
Simon Gammon, managing partner of Knight Frank Finance, said: “The second cut to the Bank of England’s base rate in a matter of days means anybody on a tracker mortgage will see an immediate cut to their outgoings.
“In many cases, it will gradually feed through to fixed-rate products. But with lenders under financial pressure brought on by the spread of Covid-19, their approach is unlikely to be uniform.”
“Activity in the mortgage market was already at a four-year high before the first-rate cut to 0.25% last week. It’s likely this cut will underpin further activity in remortgaging.”
Check for the best deal
The latest interest rate slash is likely to boost the remortgage market. Many people could now delay home move decisions and seek security in these uncertain times.
Some lenders have increased their SVR and tracker mortgage rates recently. Therefore, borrowers should not automatically assume they will make savings either. They are urged to check their deals and explore whether remortgaging to a fixed rate will offer significant savings.
Borrowers in the process of applying for a mortgage should strongly consider choosing a variable rather than a fixed rate. If in doubt, talk to a mortgage adviser to determine what mortgage type is best suited to your personal circumstances at this time.
At BuyAssociation, we specialise in UK property investment opportunities. We also work with a number of partners, including mortgage specialists, who we can put you in touch with. Call us on +44 (0) 333 123 0320 (UK) or +852 2554 5509 (HK) for more information.